Are 100% Mortgages necessarily a bad thing?

Evelyn Cusack

We alk know all of the reasons why they are thought to be a negative thing, can lead to irresonsible lending, borrowers will not have proven their dedication and so on.

But it must also be said that it can be incredibly hard and maybe even impractable to expect peope to come up with the 10% deposit.

For example, if you are living in Dublin the cost of buying a house is extremely expensive at the moment but rent is even more so. A young couple who are renting are paying more than they would on a mortgage, so much so that they cannot afford to save for a deposit.

But then of course no one has a right to own a home. However, if taking a risk based approach, is it really a negative thing to lend 100% or close to it to a couple in their thirties who both earn good money and have very safe jobs but are spending the money that they would be putting away for a deposit on the ever increasing rent payments?

This sin't the country of years ago where people lived at home till they got married and maybe even received a dowry if lucky! I'm sure there are lots in such a situation.

Would be interested to here peoples thought or if this discussion has already taken place, I don't recall.

Apologies if I am unclear, rushed writing this at work!!


Edit : Another difficulty in saving is the ever increasing taxes and the fact that it is unattractive to save at the moment

unclebill98

No, they where not to an extent.

It allowed people to get a house. This problems happened when

People bought houses at a highly inflated price.
People thought they had a secure job/income.
People took a 100% mortgage for a term that brought them right up to retirement age.
Banks started doing 100%+ mortgages.
Banks did 100% mortgages for investment properties.
People/banks played around with the whole fixed vs ECB rate mortgages and both lost out
People upgraded when they did not have too, it was a status thing
Related but not a direct cause was the release of equity in house value

These are some of the reasons it was a bad thing in hindsight. Now, I agree with the deposit aspect of house buying. Yes, it will take time to get it together and maybe the % needs to be more flexible etc but if it avoids the above its a small price to pay. TBH I think looking back a very high percentage of people who I helped getting mortgages would now say they should not have bothered and stayed renting. Cause when it goes well its good but the minority and when it goes bad....well it goes bad......

Lastly, IMHO Greed drove the whole thing in banks and people.

Scortho

If someone can't save up a minimum 10% for a deposit, then questions should surely be asked as to why they're buying that house.
Owning a house involves more than just paying the mortgage on it.
Having the 10% for a deposit, shows the lender that at least you have the capacity to save a significant chunk of money.

Evelyn Cusack

Scortho wrote: »

If someone can't save up a minimum 10% for a deposit, then questions should surely be asked as to why they're buying that house.
Owning a house involves more than just paying the mortgage on it.
Having the 10% for a deposit, shows the lender that at least you have the capacity to save a significant chunk of money.

You missed the point of my post, or more likely I didn't put it across to well, but given the cost of rent vs. repayments on a mortgage such a chunk of money would be easier to put together while paying a mortgage rather than paying rent.
In the capital it seems it would be a lot easier at present.

Scortho

Evelyn Cusack wrote: »

You missed the point of my post, or more likely I didn't put it across to well, but given the cost of rent vs. repayments on a mortgage such a chunk of money would be easier to put together while paying a mortgage rather than paying rent.
In the capital it seems it would be a lot easier at present.

Those who have the income capable of repaying a mortgage on a decent family home in dublin, should be capable of saving up enough for a deposit.
Not all areas of the city are expensive to rent either. Nice 2 bed apartments can be gotten for 1300 a month.
A person or a couple on an income capable of repaying lets say a 360 k mortgage should be well able to save a significant amount each month towards a deposit.

roro2

Rent is not that much more than a mortgage repayment (if at all) so that someone could not be expected to save towards a 10% deposit.

Furthermore, what about when interest rates increase? Assume that the current monthly mortgage repayment equals the monthly rent (ignoring other costs of property ownership - insurances, maintenance, etc). If/when the mortgage interest rate increases from 4.5% to 6.5%, the monthly repayment will increase by 25% (30-yr mortgage). If someone was so stretched that they had absolutely nothing left after paying rent, why would a bank lend them a mortgage with similar repayments, knowing that interest rates are likely to increase? If rent was double the level of the mortgage repayment, there might be some validity to your argument but that is not the case.

If buying a property is the objective but someone doesn't have any spare income to save for a deposit, the only thing to do is to reduce outgoings, including moving to cheaper rental accommodation if necessary.

All this also ignores the additional risk that the bank is taking on with a 100% mortgage where it is fully exposed to any drop in property prices, rather than being protected from the first 10% drop with a 90% mortgage.

D3PO

Evelyn Cusack wrote: »

But it must also be said that it can be incredibly hard and maybe even impractable to expect peope to come up with the 10% deposit.

not everybody should be able to afford to buy in a properly functioning economy. If somebody cannot afford to come up with the deposit then they fall into that category.

its the mentality that everybody should be able to own their own home that was part of the reason we ended up in this mess in the first place.

Scortho

D3PO wrote: »

not everybody should be able to afford to buy in a properly functioning economy. If somebody cannot afford to come up with the deposit then they fall into that category.

its the mentality that everybody should be able to own their own home that was part of the reason we ended up in this mess in the first place.

Everybody should be able to buy their own house, but they have to work for it.

roro2

Scortho wrote: »

Everybody should be able to buy their own house, but they have to work for it.

Or buy outside their ideal area, ideal house size, etc.

Scortho

roro2 wrote: »

Or buy outside their ideal area, ideal house size, etc.

To be honest I'd rather rent in my ideal area for the rest of my life, than live somewhere that I didn't like, just so I could say I owned a house.

Many people moved to 2 hours outside of dublin, just so they could own a house and a good few regret it now

D3PO

Scortho wrote: »

Everybody should be able to buy their own house, but they have to work for it.

That has no economic merit at all. Apart from being an ideological thing people would like to see what do you base your comments on.

nlgbbbblth

The customer needs to have a stake too. Bank should not take all the risk. 10% is about right.

Scortho

D3PO wrote: »

That has no economic merit at all. Apart from being an ideological thing people would like to see what do you base your comments on.

The American dream !:pac:

What I meant was everyone has the right and ability to own their own home, but if they want to, they have to work for it.
They can't expect it to be handed on a plate.

D3PO

Scortho wrote: »

The American dream !:pac:

What I meant was everyone has the right and ability to own their own home, but if they want to, they have to work for it.
They can't expect it to be handed on a plate.

:pac: Yes but as there will always be people who earn less and its not possible for everybody to end up in that place.

Everybody should and does have the opportunity to buy by working hard and saving hard, but economically speaking not everybody can own or should be able to.

Liam D Ferguson

nlgbbbblth wrote: »

The customer needs to have a stake too. Bank should not take all the risk. 10% is about right.

+1

In any business transaction, both sides need to have skin in the game.

If I can get a 100% mortgage for a monthly repayment that is comparable to rent, then it's a win/win situation for me. If I like the house and the area I carry on paying and eventually I've bought the house outright. If something goes wrong for me - I lose my job etc., I default on the loan and the house is repossessed but I'm no worse than I was at the start and I go back to renting. No risk for me.

Jim2007

Evelyn Cusack wrote: »

You missed the point of my post, or more likely I didn't put it across to well, but given the cost of rent vs. repayments on a mortgage such a chunk of money would be easier to put together while paying a mortgage rather than paying rent.
In the capital it seems it would be a lot easier at present.

Why do you assume that buying is a better option than renting? The idea that renting is wasted money is a very Irish/UK concept and flawed from the point of view of most mainland Europeans, because you do get something - accommodation!

Now people say it is an investment and on that basis go on to break every rule in the book:
- A low risk portfolio should have no more than about 6% in property! No we'll go for 100%
- Do not borrow to invest, No we'll borrow 100% if we can
- Diversify your holdings to reduce risk, no we'll concentrate everything in one location and in a single property in that location
- invest in liquid assets for an easy exit strategy, no we'll invest in something that will be really hard to dispose off
- and on we go....
Anyone who thinks they are making a wise financial decision when they buy a house are only fooling themselves - they are actually entering into a very risky investment where they are ignoring all the best advice going.

Homeownership furthermore prevents mobility in times of an economic shift or downturn - you can't go where the jobs are!

Then there is the suitability of the property itself, a property bought to accommodate a growing family presents too much work and expense in up keep for a couple in retirement and so on.

Most of my Swiss neighbors and colleagues consider buying a house to be akin to financial recklessness and boy have proved them right!